Mukesh Patel.in
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COMPUTING TDS ON SALARY

Report all eligible exemptions & deductions to your employer to ensure non-deduction of excess TDS from your salary!

             Section 192 of the Income-tax Act prescribes for tax deduction at source out of payments representing any income chargeable to tax under the head ‘Salaries’. The provisions for tax deduction at source from Salaries during each Financial Year are explained by the Central Board of Direct Taxes (CBDT) under a special Circular.

             TDS under Section 192 is required to be calculated on the basis of the prevalent rates of income-tax on the estimated salary income and is required to be deducted on a proportionate basis at the time of each payment. For the said purpose the employer is required to consider various exemptions and deductions as prescribed under the Circular while computing the actual amount of income-tax to be deducted.

EXEMPTIONS & DEDUCTIONS TO BE CONSIDERED

Listed hereunder are the important exemptions and deductions which need to be considered in the above regard:

  • Leave Travel Concession (LTC) exempt under Section 10(5).

  • Gratuity exempt under Section 10(10).

  • Commutation of pension under Section 10(10A).

  • Leave encashment exempt under Section 10(10AA).

  • Retrenchment compensation exempt under Section 10(10B).

  • Payment under Voluntary Retirement Scheme (VRS) exempt under Section 10(10C).
  • Payment under an LIC Policy exempt under Section 10(10D).

  • Provident Fund payment exempt under Section 10(11) or under Section 10(12).

  • House Rent Allowance exempt under Section 10(13A).

  • Specified notified allowances exempt under Section 10(14), such as transport allowance, conveyance allowance, attire allowance, helper allowance, children education allowance, etc.

            The following deductions, though not relatable to salary income, are eligible to be considered for deduction while computing the estimated taxable salary for the purpose of TDS under Section 192:

  • The loss under the head ‘Income from House Property,’ representing upto Rs.1,50,000 of interest payment on housing loan can be considered for set off.

  • Deduction within the aggregate limit of Rs.1,00,000, under Section 80C in respect of specified investments and allocations, under Section 80CCC in respect of contribution to an approved pension fund and under Section 80CCD in respect of contribution to the new pension scheme for Government employees.  

  • Deduction of upto Rs.20,000 in respect of investment in notified long-term infrastructure bonds under Section 80CCF.

  • Deduction under Section 80D in respect of medical insurance premium within the limit of Rs.15,000. Where the employee or his spouse or parents or any member of the family is a Senior Citizen, such deduction will be allowable within the enhanced limit of Rs.20,000. An additional  deduction of Rs.15,000 is eligible to be considered if the same has been paid by the employee exclusively for covering medical insurance for his parents (in case any of his parent is a senior citizen such deduction will be Rs.20,000).

  • Deduction of Rs.50,000 under Section 80DD in respect of medical treatment and deposit for maintenance of handicapped dependants. In case of a handicapped dependant with severe disability, the allowable deduction would be Rs.1,00,000.

  • Deduction under Section 80E in respect of interest paid on loan taken for purposes of higher education of the employee or his spouse or children.

  • Deduction under Section 80G in respect of donation to specified funds such as Prime Minister’s or Chief Minister’s Relief Funds. It needs to be noted that no deduction can be granted in respect of other donations for charitable purposes, while computing tax under Section 192. Tax relief in respect of such contributions should be claimed by the employee in his regular income-tax return.

  • Deduction under Section 80GG in respect of rent paid within the limit of Rs.24,000.

  • Deduction of Rs.50,000 under Section 80U in respect of an employee suffering from permanent physical disability (including blindness or mental retardation) as specified under Rule 11D of the Income-tax Rules. In case of a handicapped employee with severe disability, the allowable deduction would be Rs.1,00,000.

ADJUSTMENT OF TAX DEDUCTIBLE DURING THE YEAR

             The tax liability of an employee may undergo change keeping in view various developments which may occur during the financial year. To meet with this contingency, Section 192(3) provides that the employer may from time to time, at the time of making any deduction, increase or reduce the amount to be deducted as TDS from salary for the purpose of adjusting any excess or deficiency arising out of any previous deduction or failure to deduct during the financial year.

             It needs to be borne in mind that if any adjustment is made as a consequence of the above in respect of the tax to be deducted in the remaining months of the financial year, the employer obviously cannot be held as being in default for short deduction of TDS under Section 201(1A).

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